President and chief executive Brian Ferguson said on a conference call the company will leave its list of deferred thermal oilsands projects on hold as it awaits a provincial royalty review panel report originally expected this month but now delayed until January.

Oilsands giant Cenovus Energy Inc. will cut spending next year by $350 million compared to 2015 as uncertainty continues to swirl around commodity prices and changes to Alberta’s royalty system, it said Thursday.

The Calgary-based company set its capital budget at $1.4 billion to $1.6 billion, down from $1.8 billion to $1.9 billion in 2015. It spent $3.1 billion in 2014.

President and chief executive Brian Ferguson said on a conference call the company will leave its list of deferred thermal oilsands projects on hold as it awaits a provincial royalty review panel report originally expected this month but now delayed until January. He added the company could cut up to $200 million more from its budget if oil prices continue their recent slide.

“With regard to reactivating previously deferred projects at Christina Lake, Foster Creek and Narrows Lake, I’m looking for regulatory and fiscal clarity, which I expect to see sometime in the first half of 2016,” he said.

“As we continue to demonstrate that our cost savings that we’ve seen in 2015 are sustained, I will then make decisions on reactivating these oilsands projects which remain the core of our business.”

Ferguson was one of four oilsands executives who shared the stage last month when Premier Rachel Notley unveiled new climate change policies, including a 100-megatonne hard cap on overall oilsands greenhouse gas emissions. Total emissions now are about 70 megatonnes.

Cenovus says it will complete an expansion phase at its Christina Lake project in northern Alberta in 2016 but will watch for results from the Alberta royalty review before looking at reactivating deferred projects.Supplied /
CENOVUS ENERGY INC.

Asked if Cenovus felt pressure to accelerate development to get it done under the cap, the CEO pointed out that with expected approval of Phase H at Christina Lake, the company will have a total of more than 600,000 barrels per day of net existing or approved production.

Because of that, he said, the emissions cap is expected to have “no material impact” on the company.

Cenovus shares closed down 33 cents at $18.35 on Thursday. They’ve traded between $15.75 and $26.42 in the past 52 weeks.

In a note to investors, analyst Arthur Grayfer of CIBC World Markets rated the guidance “slightly negative.”

Predicted production of 272,000 barrels of oil equivalent per day in 2016 is below CIBC and consensus expectations, he said, and operating costs are higher because of maintenance turnarounds and higher steam-oil ratios associated with startup of the thermal oilsands expansion phases.

“A saving grace for the company is an expected cash tax recovery of about $100 million, compared to our estimate of a cost of about $100 million,” the note says. “At first blush, the cash tax recovery more than offsets the impact of lower production and higher opex, with a slight positive effect on strip cash flow.”

Analysty Greg Pardy of RBC Dominion Securities gave the budget a “positive” mark, noting that spending is 18 per cent below his outlook but production is just one per cent less than his estimate.

Cenovus said it expects the two oilsands expansions, along with the recently completed Christina Lake optimization project, will add 35 per cent or 100,000 bpd in gross oilsands capacity when fully ramped up in 2017.

Harbir Chhina, executive vice-president on oilsands, confirmed on the call that the Foster Creek expansion startup had been pushed back by one quarter to control costs.

Cenovus’ budget assumes an average US$49 per barrel price for benchmark West Texas Intermediate next year. WTI crashed to below $37 this week but Ferguson said the company will be still able to generate sustaining capital, pay its dividend and fund some growth at current prices.

Cenovus expects to spend about $35 million less on administration next year, partly due to its reduction of 1,500 jobs this year leaving 4,000 staff and contractors. In an interview, Ferguson said more cuts are possible in 2016 but not of the same magnitude.

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